Why Mallinckrodt Stock Is Sinking Today

What happened

Shares of Mallinckrodt (NYSE: MNK) are sinking today, down 8.3% as of 11:30 a.m. EDT after falling as much as 12.2% earlier in the session. The drugmaker announced on Tuesday after the market closed that it was discontinuing the phase 2b clinical study evaluating Acthar Gel in treating amyotrophic lateral sclerosis (ALS).

Mallinckrodt stated that the study was being permanently halted on the recommendation of the study's independent data and safety monitoring board. The board expressed a concern that more ALS patients taking Acthar were developing pneumonia compared to patients on placebo.

Doctor holding up hand as if to stop something

Image source: Getty Images.

So what

The discontinuation of the study means that Mallinckrodt won't be able to pick up yet another approved indication for Acthar in treating ALS. Acthar is currently approved by the U.S. Food and Drug Administration (FDA) for 19 indications.

However, other clinical studies that are in progress for Acthar aren't impacted by the ALS setback. In Mallinckrodt's first-quarter conference call , company executives didn't talk about the ALS study at all. Instead, they focused on upcoming results for clinical studies evaluating Acthar in treating multiple sclerosis and rheumatoid arthritis. Mallinckrodt announced positive results from its phase 4 rheumatoid arthritis clinical study in June.

The reality is that the deck was stacked against Acthar in treating ALS from the beginning. Mallinckrodt Chief Scientific Officer Steven Romano admitted this, stating, "Though the probability of success for the ALS population was acknowledged as being low, this study was initiated based on compelling analyses carried out following the completion of a small pilot study, and we were hopeful it would have translated into a benefit for this group of patients in great need of effective therapies."

Now what

Mallinckrodt's biggest challenge now has nothing to do with the ALS study discontinuation. In May, the company filed a lawsuit against the U.S. Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS). The goal of this lawsuit is to set aside a CMS decision that Mallinckrodt is afraid would eliminate its net sales of Acthar Gel to Medicaid.

There appear to be too many dark clouds hanging over Mallinckrodt right now to make this stock a great pick to buy. Investors are probably better off staying on the sidelines.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance , Stocks
Referenced Symbols: HHS , CMS , MNK

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